Optimism in the air

Published: 14/06/2017 12:00 pm

Oman’s aviation sector has entered a robust phase with the launch of a new low cost airline and expansion of services by Oman Air as well as other airlines operating in the country

The aviation industry has seen its share of ups and lows in the previous year. While the industry benefited from reduced fuel costs owing to the decline in crude oil prices, the operating costs were pared by fare wars. Economic uncertainties in the Eurozone – due to Grexit and Brexit – in the Middle East – owing to the oil price crisis – and the apprehensions about the policies of the new government in the US under Donald Trump had its impact on the industry. That being said, the overall sector posted growth operating profits for a second consecutive year in 2016 and the streak is expected to continue this year too.

The International Air Transport Association (IATA) had projected a profitability of US$39.4bn in June 2016, which was later revised to US$35.6bn owing to slower global GDP growth and rising costs. Still, it is the highest absolute profit generated by the airline industry and the highest net profit margin (5.1 per cent). IATA expects the global airline industry to make a net profit in 2017 of US$29.8bn, which represents a 4.1 per cent net profit margin on total revenues of US$736bn.

The aviation industry performance in the Middle East have been mixed as it also benefited from low fuel costs, but the crude price crisis posed problems in terms of reduced government and corporate expenditure. But most airlines have enjoyed capacity rises last year and this year too and they expect better performance post Ramadan. Oman's aviation sector is has entered a robust phase with the launch of the low cost carrier SalamAir as well as Oman Air's addition of new destinations to it itinerary. Clubbed with offers and promotions from other airlines operating in the country, the aviation industry is positive about the future.

Oman focus

The aviation sector in Oman has entered a dynamic new phase in 2017. The national carrier has expanded its service in the UK and Africa, while the much awaited low-cost airline SalamAir has begun services and is enjoying good demand.

Oman Air has been making inroads in the Middle East region with its distinct offers and services. The airline, which is focuses on sustainable growth over ambitious expansion, flies to 55 destinations. Ihab A Sorial, senior vice president – International sales, Oman Air, says, “There are many challenges in this sector, like over capacity in the market and the current oil price crisis, which has resulted in expenditure cuts by companies. We have to include all the variables in to account while charting our development plan, which is to attain profitable and sustainable growth. At present we have 49 aircraft flying to 55 destinations and our target is to increase our fleet to 68 aircraft by 2023.”

The company recently started direct flights to Manchester in the UK and Nairobi in Kenya.

SalamAir presently flies to five destinations including four flights daily to Salalah, daily flights to Dubai DWC Airport, daily flights to Jeddah in Saudi Arabia as well as three weekly flights to Medina. Expanding its network, the company recently launched services to Pakistan, flying thrice weekly to both Multan and Sialkot.

François Bouteiller, CEO of SalamAir, says, “The months since our launch in January have certainly been very busy with the strong response to the innovative offering of SalamAir. I’m delighted to say that we have enjoyed a fair load factors, despite an increase of frequency to some destinations, whereas other destinations are meeting demand expectations.”

Oman Air does not see SalamAir as a competitor but as a complementary service that adds value to the country's aviation sector. Sorial says, “We see SalamAir as a complementary service rather than as a competition. There are a lot of synergies between the national carrier and SalamAir and we collaborate with each other. During the recently concluded ITB 2017, we had a booth which was also shared by SalamAir.“

Wooing customers

Traditionally Ramadan is a time of low economic activity in the Middle East. But it is also a time when people make plans for Eid holidays. Steady economic growth, a young work force and a burgeoning middle class have changed the lifestyle of Omanis in the last decade. From a time when holidaying meant visiting Salalah or Dubai, people are now travelling far and wide and exploring new destinations.

“Economic growth, disposable income and aspirations of the youth are the main reasons behind the growth in demand for holiday destinations. The rise in competition has forced airlines to design competently priced packages which are much more affordable than it was 10-15 years ago,” says an executive at one of the leading low-cost airlines operating from the sultanate.

All the regional airlines as well as major international carriers have operations in Muscat. Though recent economic issues have dampened demand, airlines are coming out with diverse schemes to attract customers. These include fare discounts, loyalty programmes, add-ons like additional luggage or insurance etc plus combo offers that include return tickets plus hotel bookings etc.

India-based Jet Airways has been operating from Oman for over nine years. The company operates a network of 65 destinations from Oman, with four non-stop services from Muscat to destinations such as New Delhi, Mumbai, Thiruvananthapuram and Kochi in India.

Shakir Kantawala, vice president, Jet Airways, says, “Ahead of the holy month of Ramadan and Eid celebrations, Jet Airways has planned an attractive promotion of fares with savings of 12 per cent on base fare and airline surcharge for bookings only on jetairways.com. Travel is valid from July 22 – November 30, 2017.

“The special fares are applicable for Premiere and Economy travel on all Jet Airways’ direct flights from the Gulf to India and beyond to the airline’s SAARC and ASEAN destinations.”

Bahrain-based Gulf Air has had a presence in Oman from 1957. The company flies vis Bahrain to seven destinations in Pakistan – Karachi, Lahore, Islamabad, Peshawar, Sialkot, Multan and Faisalabad– six cities in India – New Delhi, Mumbai, Kochi, Chennai, Thiruvananthapuram and Hyderabad. The company recently launched direct operations to the Sri Lankan capital city of Colombo with five weekly flights. On June 22 Gulf Air will launch a direct three weekly service to the Georgian capital city of Tbilisi via Bahrain.

Speaking about Ramadan offers, Ahmed Ali Ramadhan, country manager, Gulf Air in Oman, says, “We regularly offer various market-specific promotions with attractive fares to a number of our destinations and will continue to share more with our customers over the coming weeks. Currently Gulf Air has a 50 per cent redemption offer for the airline’s FalconFlyer loyalty programme members. Through this offer, which is valid until June 22, 2017 on all destinations in our network, passengers can enjoy 50 per cent off miles’ redemption.”

Oman Air works closely with the Ministry of Tourism to promote the sultanate as a holiday destination across the world. Winning the Best Arab Air Carrier supporting Arab Tourism’ award in the recently held 2017 Arab Tourism Media Awards ceremony stands as a testament to its stellar efforts.

Sorial says, “Our objective is to promote Oman not only a transit location but as a tourism destination. Oman is unique compared to the neighbouring countries. We work closely with the Ministry of Tourism to promote the country. Recently we flew in the IATA team from Sri Lanka, who held their annual general meeting in the sultanate. It helped in showcasing Oman to Sri Lanka. We do familiarisation trips like these regularly to promote the tourism in Oman.

“Oman Air holidays offers exclusive packages in various destinations across the world. We have ear-marked leisure destinations in countries like India, Sri Lanka, Thailand etc. There is great interest towards these sites from Europe and we are trying to connect the dots.”

The company also offers a unique business class service which has been much appreciated by the industry. “Oman Air's premium product is unique compared to other airlines. The privacy, the seating arrangement, the in-flight service and personal care etc are some of its key features. We give attention to small details that enhances the passenger experience. We try to customise services based on the destinations like having Chinese tea pots on board the flight to Guanzhou in China,” says Sorial.

SalamAir offers packages that reflect the needs of the holy season. Bouteiller says, “We are offering seasonal travel options such as the launch of flights to Taif airport, capacity permitting, during the holy month of Ramadan and we plan to boost services to Medina for the duration of that month to accommodate the needs of guests traveling for Umrah. Arrangements to add flights to Salalah are also underway to cater to the increased demand from tourists during the popular Khareef season.”

The economic crisis has dampened interest among people to go for holidays in costly European destinations like Switzerland or France. So companies are offering destinations that are cheaper yet rich with novelty. Companies like Air Arabia have designed affordable holiday packages keeping the season in sight. The destinations include Tbilisi in Georgia, Trabzon in Turkey, Yerevan in Armenia, Baku in Azerbaijan etc.

Striking a balance

Though the fall in crude prices helped airlines in the form of lower fuel costs, the benefits were offset by price wars. Most companies reduced prices to increase volume, forcing competitors to follow suit, which has led to margin squeeze.

Sorial says that Oman Air is not into price war and manages its fare based on market realities. “We are not into price war. We check our prices during peak and off-peak time which is a general management strategy. The prices are balanced based on the volumes and yields. Normally Ramadan is a slow period in the GCC and other Muslim countries. After that it goes into a peak period.

“Our volumes have been high so far and we are trying to be smart in our pricing. We are focusing on segmentation, trying to attain more value by connecting dots between profitable routes.”

Ramadhan says that airlines have to keep a balance between increasing volumes and profitability. “The aviation industry is known for being inherently vulnerable to forces beyond its control and fluctuating oil prices is one example,” he says.

“A decrease in oil prices such as that experienced over the past 18 months and more, can enhance profits (at least initially), lead to lower airfares and spur demand for travel, pushing airlines to increase capacity. However, what we have seen over the past year and more is a fare war in an already highly competitive industry – with airlines competing to sell seats at increasingly lower fares to raise market share. Airlines need to strike the right balance between adding capacity and securing/ maintaining passenger yields.”

Stable outlook

In a recently released report, Moody's have maintained its stable outlook for the global airline industry.

It said, “Moody's projects the aggregate operating margin of rated airlines to approach nine per cent in 2017 and about eight per cent in 2018, from a projected 10.8 per cent in 2016. This trend reflects declines in operating profit of the rated airlines of about 11 per cent in 2017 and about 12 per cent in 2018, widening from a projected 1.2 per cent contraction in 2016. These rates of change fall within Moody's –20 per cent to 20 per cent range for a stable outlook.”

Weak oil prices will continue to impact the Middle East economies in the current year too as Moody’s says that it expects GDP growth in the Gulf in 2017-18 to remain weak by historical standards, with an average of 1.6 per cent across the Gulf Cooperation Council (GCC). Despite this, the airline industry in the region is expected to increase its capacity by ten per cent according to the agency.

There are many challenges, but the global aviation industry is positive about a profitable year in 2017. Oman's aviation sector has entered a new phase with the launch of SalamAir. Clubbed with a sustainable growth model followed by the national carrier as well competitive strategies from other players, the industry is in the right position to harness growth.